“The Economic Returns to Basic
Research and the Benefits of
University-Industry
Relationships”
By: José Coutinho, Marco Bravo e Paulo Rebelo
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
Slide#1
Contents:
1.
AIMS OF THE REPORT;
2.
BACKGROUND;
3.
KEY FINDINGS;
4.
AN INTUITIVE APPROACH;
5.
INNOVATION IN THE MODERN ECONOMY: BEYOND THE
INTUITIVE APPROACH;
6.
MEASURING AND QUANTIFYING THE RETURNS OF BASIC
RESEARCH TO THE ECONOMY;
7.
UNIVERSITY-INDUSTRY RELATIONSHIPS;
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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1. AIMS OF THE REPORT
“In the study of technology transfer, the neophyte and the veteran
researcher are easily distinguished. The neophyte is the one who is
not confused”, (Bozeman 2000).
• Up-to-date information  returns to academic research and
university-industry relationships;
• Need to analyse and understand the relationships between public
research and innovation  effective government policy in this area
would benefit from being suported by a much stronger research
base than currently exists.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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•
Linear Model:
Idea
•
Research
Design &
Development
Production
Operation
Non-linear Model:
Research
Knowledge
(both in-firm and available elsewere)
Technology Platforms
Potential
Market
Invention /
Analytical
Design
Detailed
Design &
Test
Redesign
&
Production
Distribution
& Market
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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2. BACKGROUND
Context
Intuitive
Approach
Innovation is not
linear
A more realistic
approach
 An intuitive approach: it should be possible to calculate the returns to public
research;
 Innovation is not linear: involve interactions with public research 
understanding many benefits of public research for the economy and the channels
through which these benefits come about;
 More realistic approach: examine in detail research-innovation relationships,
science and technology. returns to basic research are probably much  than those of
the intuitive linear approach.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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3. KEY FINDINGS
Returns to public research:
• High rates (about 20-50% or ). Diverse
economic sectors and countries mostly find
substantial returns;
• Limits to quantification:
– Wide acceptance of the limits;
– Other research benefits:
1. Creating strategic
value;
2. Analysing channels
of communication
between research
and private sector;
3. Many social benefits;
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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4. AN INTUITIVE APPROACH
LINEAR MODEL:
1. Science is mainly seen as a source of new information;
2. Information is published openly (as is usual with academic research
findings)  low cost input into economic processes;
3. Link between science and technology: scientific information 
creation of new technologies  used in economic activity;
4. Science in the creation of economic returns  quantify the economic
benefit attributed to the basic science elements;
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Linear model is simple...
...but has limitations:
–
does not allow technology leading science (science is often not the source for
new ideas, but is used to understand new technologies and complete new
projects);
–
Ignores the existence of industry publications – industry is doing science too!
–
Ignores the need for capability and capacity at the industry end for universityindustry relationships to work;
–
Obfuscates variability in university-industry relationships between industry
sectors, and the mechanisms through which knowledge transfer occurs;
–
Ignores ‘non-linear’ channels through which knowledge and benefits arise
from university-industry relationships.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
Slide#8
5. INNOVATION IN THE MODERN ECONOMY:
BEYOND THE INTUITIVE APPROACH
NON-LINEAR MODEL
•
Role of innovation and technical change  fostering firms’, industries’
and countries’ capabilities for wealth creation;
•
Policy makers  need to know how best to facilitate innovative strategies;
•
Analysis of NSI  innovative performance of a country (growth
potential), depend upon the development of a balanced ‘system’ of
knowledge production and distribution...
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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6. MEASURING AND QUANTIFYING THE RETURNS OF
BASIC RESEARCH TO THE ECONOMY
1. A short overview of the research, including recently published results
•
The analysis has been constrained to the linear model
•
although this does not allow for complete measures, it is done simply so that
there is something that can be measured.
2. Detailed summaries of a selection of important recent papers presenting results
of modelling and quantification efforts.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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SOCIAL RATE OF RETURN TO PUBLICLY FUNDED
RESEARCH AND DEVELOPMENT
•
The linear model of the relationship between science and innovation
suggests that science contributes knowledge for application in the innovation
process.
•
Social investments in science can thus be expected to increase social welfare
and ‘if such returns are traced, we will be able to account for the return on
scientific investment’ (Steinmueller 1994: 58).
•
While the identification and characterization of the flow of benefits from
public research is in itself useful, numerous attempts have been made to
quantify the returns from public research.
•
Griliches (1958) pioneered the measurement of social returns to research
investment in this way.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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PUBLISHED ESTIMATES OF SOCIAL RATE OF RETURN
TO PUBLICLY FUNDED RESEARCH AND DEVELOPMENT
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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ESTIMATES OF PARTIAL-INDICATOR ELASTICITIES
•
There is a range of problems associated with measuring comprehensive
economic returns to public R&D
•
Academic debate about these problems has encouraged researchers to adopt a
more modest approach focusing on measuring:
– the relationship between public funding and
– specific desirable outcomes, such as the level of business R&D and
innovation.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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ESTIMATES OF PARTIAL-INDICATOR ELASTICITIES
(TABLE 2)
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Manfield (1991)
•
11% of new products and 9% of new processes could not have been
developed in the absence of the academic research without substantial delay,
amounting to 3% and 1% of sales respectively;
•
2.1% of sales for new products and 1.6% of new processes would have been
lost in the absence of the academic research;
•
Rate of return from academic research = 28%;
1998:
•
15% of new products and 11% of new processes could not have been
developed (without a substantial delay) in the absence of academic research;
•
Innovations that could not have developed without academic research
accounted for 5% of total sales for the firms;
•
Time delay from academic research to industrial practice has shortened from 7
years to 6.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Recent papers: overview
•
In a large German study Beise and Stahl (1999) obtained results similar to
Mansfield (1991), with the exception that they did not calculate a rate of
return.
•
Cockburn and Henderson (2000) report a 30 percent minimum return to
publicly funded pharmaceuticals research.
•
Also working in the pharmaceuticals sector, but employing a different
approach, Toole (2000) finds that a 1% increase in the stock of basic research
ultimately leads to a 2.0% to 2.4% increase in the number of commercially
available compounds.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
Slide#16
Recent papers: overview
•
In an important study using OECD data Guellec and Van Pottelsberghe
(2000) produced a range of findings concerning the relationship between the
public and private funding of research. The primary concern addressed was
whether public funding crowds out private funding of research. In addition to
the discussion below see Table 2 for a short summary of the results.
– They identify four possible ways for governments to fund R&D.
• Funding businesses directly to undertake research (either by means of
procurement programmes or as grants);
• Providing tax-based incentives for business R&D;
• Perform R&D themselves in public laboratories;
• Funding universities to conduct research.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
Slide#17
Recent papers: overview
•
Also pursuing this line of enquiry, David et al. (2000) conducted a substantial
review of the econometric literature addressing the question of whether public
R&D is a complement or a substitute for private R&D.
•
In a French study Autant-Bernard (2001) finds that public research increases
private innovation both directly and indirectly by increasing private research.
These effects are geographically localised.
•
Tijssen (2001) aimed to identify the degree to which innovations are ‘science
dependent’ and found that approximately 20 percent of private sector
innovations are partially based on public sector research.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Difficulties with measuring economic returns to academic research:
•
Wide scope of the benefits + many complex and often indirect channels 
economic returns very difficult to measure;
•
Most measurement attempts are based on the linear model  fail to capture
most of the complex reality of the relationship between science and innovation;
•
Productivity improvements measured in ratio inputs/outputs  complicated
and delayed link academic research/economic returns  very difficult to
measure/identify inputs and outputs;
•
Difficulties: Outputs (market price for new goods/services  don´t include
spillovers + improvement in product quality- consumer utility, is likely not to
be entirely reflected) | Inputs (high time before new scientific knowledgetangible economic effect + many channels (public research influences private
sector productivity)
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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7. UNIVERSITY-INDUSTRY RELATIONSHIPS
•
Understand returns to public research  analyse relationships between universities
and firms;
•
Public science is part of a larger network of knowledge creation  many more
benefits than simply new information;
•
Public research  number of benefits (tangible outputs & sources of strategic value)
to the economy and to innovation  measuring them is difficult!
•
Benefits + sources of strategic value + firms/public research relationships  come
about through various channels;
•
University/industry relationships:
– support, stimulate or impede their development;
– Have been improving over the years;
•
Governments  ‘framework conditions’ favourable
to industry-university relationships  encourage
development of channels through which these relations can
develop;
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Science and the economy: scoping the benefits
Benefits from public research for innovation:
1. Producing new scientific information;
2. Training skilled graduates;
3. Supporting new scientific networks and stimulating interaction;
4. Expanding the capacity for problem-solving;
5. Producing new instrumentation and methodologies/techniques;
6. Creating new firms;
7. Providing social knowledge;
8. Enhanced credibility for firms using independent testing facilities at universities;
9. Enhanced commercial credibility through being linked to a university;
20% of industrial R&D managers use instruments/techniques generated by
public research in their own projects within the previous 3 years
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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BENEFIT- “Further Evidence”:
•
Growing need for firms to have knowledge about the social and regulatory
pressures that will partly determine succeed or fail of innovations (public
reactions to new technologies can affect their trajectories);
•
Use of social knowledge is beginning to emerge (45% research institutions
collaborated with industry - analysis of environment/framework for
innovations);
A new benefit: Access to unique facilities:
•
Industry gains access to unique facilities held and developed at universities
 widely disseminated for use and development in industry;
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Research as a source of strategic value:
Capability and variety  determine the capacity
within a firm or innovation system;
•
Research as capability: ‘good ideas are useless if the skills needed to use
them do not exist’(Conceição and Heitor 1999: 46);
•
Research as variety: ‘the variety of demands being placed on universities
is a reason to believe that the higher education system itself also needs to
be diversified’ (Conceição and Heitor 1999) – Change
requires
diversity in terms of competences;
•
Publicly funded research= improve system-wide capability (qualitative
research skills) and variety (creation of options and diversity);
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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• R&D within firms has 2 functions:
1. allows new knowledge creation;
2. enhances their ability to assimilate and exploit
existing external knowledge (Cohen and Levinthal
1989);
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Channels of communication between universities and the
economy:
•
Much of economic literature: connections between
universities/firms come as ‘externalities’ of public research;
•
This idea has been criticised  NEW mechanisms of linkage need
to be analysed;
•
Communication channels – formal and informal, direct and
indirect, deliberate and unplanned (effect changes over time and
are affected by geographic proximity);
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Principal channels of communications:
a) Codification/artefacts: publications, patents, prototypes;
b) Cooperation: joint ventures, personnel exchanges;
c) Contacts: meetings and conferences, informal interaction, science parks,
industrial liaison offices, funded networks, customer links (universities as
customers), sponsored university posts, studentships, part-time teaching;
d) Contracts: licences, contract research, consulting and universities using
equipment in spin-off firms, product testing, business support;
These links provide benefits in both directions, indicating further
evidence of the complexity of university-industry relations
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Conclusions- channels of communication:
•
Existing range of communication channels between public research/
private sector;
•
Linkage research/higher education   capabilities in the economy 
ensures a flow of skilled graduates into the economy;
•
Public research stimulates the capabilities of the private sector;
•
Creating and maintaining variety, public research helps maintain the
diversity of options vital to a flexible innovation system;
•
Firms see many of these channels of communication as important for
deriving value  this line of enquiry could be fruitful in the future;
•
Many channels remains sparse (especially recent ones)  restricts ability
to support policy decisions;
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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Although difficult to quantify, research benefits
economy - probably significantly more than
narrow calculations would suggest...
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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In Portugal...
INGENIUM
(II series, Nr. 77 August/September 2003)
“Superior teaching reforms and
professional competences”
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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...more information on the subject
...see our report...
REFERENCES:
I.
Scott, Alister et al (2001), “The Economic Returns to Basic Research and the Benefits of University-Industry
Relationships”. SPRU- Science and Technology Policy Research, University of Sussex;
II.
Conceição, Pedro et al (2000), “Science, Technology and Innovation Policy – Opportunities and Challenges for the
Knowledge Economy”. Being Digital: The Unavoidable Transformation of Research Universities, p. 81-86;
III.
Conceição, Pedro et al (2000), “Science, Technology and Innovation Policy – Opportunities and Challenges for the
Knowledge Economy”. Industry-University Linkage and the Role of Universities in the 21st Century, p. 87-98;
IV. Conceição, Pedro et al (2000), “Science, Technology and Innovation Policy – Opportunities and Challenges for the
Knowledge Economy”. Entrepreneurial Universities: Policies, Strategies, and Practice, p. 119-128;
V.
Caraça, J. et al (2000), “Towards a public policy for the research university in Portugal”;
VI. Conceição, Pedro and Heitor, Manuel V., “Knowledge for Inclusive Development”. Sustainable Societal Learning: A
Discussion of the Role of the University, p.49-78;
VII. Conceição, Pedro et al, “Knowledge for Inclusive Development”. Should Universities be Economic Institutions? p. 3047;
VIII. Kennedy, Donald (1997), “Academic Duty”. To Reach Behind the Walls, p. 241-265;
IX. Arrow, Kenneth J. et al, “Education in a Research University”, p.101-111;
X.
Tierney, William G. (1998), “The responsive university: restructing for high performance”, The Responsive University
in Twenty-first Century, p. 162-173;
XI. Kim, Junmo (2002), “Network building between research institutions and small and medium enterprises (SME´s):
dynamics of innovation network building and implications for a policy option”.
Lecture#6: 31/10/2003
“The economic returns to basic research and the benefits of University-Industry Relationships”
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